Plan and Counterplan

The Future of Mandatory Service

2008-09-03T12:45:00.002-04:00

(Cross-posted at Heritage)

Time magazine ran a story back in 2007 on “The Case for National Service.” The story described the positions of the candidates for president on expanding “public service” programs. Two of the Democrat candidates favored mandatory community service by all high school students. And two others — Hillary Clinton and Joe Biden — favored creation of a U.S. Public Service Academy for training civil servants.

Barack Obama has centered speeches around this idea of public service. He waxes sentimental about what we can each do for our country. All in one speech, he said that we must “answer a new call to service to meet the challenges of our new century” and that he “won’t just ask for your vote as a candidate” but “will ask for your service.” And he said that, in fact, this is the cause of his presidency.

Obama, though, is not listed as favoring this proposed academy. Instead, he proposes expanding AmeriCorps and the Peace Corps along with several other programs, and offering funding to students in exchange for community service. We can only hope that he isn’t convinced by his supporters and colleagues to change his mind on this.

Proponents of the academy argue that we’re facing a shortage of public servants, and such an academy could help. Of course, they do not mention that we could reduce the size of government instead of training our youth like soldiers to work for an ever expanding public sector.

It isn’t mere rhetoric to say they would be trained like soldiers. Supporters of the bill have called the proposed academy the “civilian counterpart to the uniformed service academies.” But we should not need a civilian counterpart to the military service academies beyond the police academies that already exist — because the civilian counterpart to the military is just the police officer corps.

Another scary thought is that the belief in mandatory community service for high school students, or mandatory military service as Rep. Charlie Rangel (D-NY) has proposed, could combine with this call for a Public Service Academy. In fact, Rangel himself suggested that under his proposal, “Recruits not needed by the military in any given year would be required to perform some national civilian service.” He argued that mandatory service would close the economic gap, in which the poor are forced to serve disproportionately. However, this gap is actually a myth.

The idea that America’s youths should train like soldiers to serve government on the domestic front is contrary to the freedom and independent spirit this country was founded on. Furthermore, such programs are reminiscent of Soviet youth programs and Soviet job programs, and would similarly incorporate propaganda beneficial to the government in power. A free economy founded on small government has no need for such things — and they set a dangerous precedent.

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Ask what you can do for your country? What happened to your civil servants serving you - the government as a service to us, to protect us, so long as we vote for it to do so, and no longer? How did this mutate into the ideal of citizens showing their love for government through potentially mandated terms of service?

Socialism Not Speculation to Blame for High Oil Prices

2008-07-30T18:58:00.001-04:00

More than 75% of the world’s oil reserves are controlled by national oil companies. Of the world’s top 20 oil-producing firms, 14 are state-run. Those areas where private companies have been able to drill have recently been shrinking, and remaining private companies are facing hostile governments that may try to nationalize them.

Meanwhile, Congress, pandering to the least economically sound sentiments of the American public, recently tried to pass a bill to curb oil market speculation. This, lawmakers argued, was the way to get prices down. Speculation is just trading on the future price of a good. There have been many reasons to expect the price of oil to continue to rise. Along with rising demand, and subsidies to aid the rise in demand, there is a lot of risk. Risk causes volatility and drives prices up — at least in the short term.

There is risk because of the war in Iraq, because of the government in Iran, terrorism, and then there is additional risk because of the growing number of countries where the governments are trying to nationalize the oil supply.

This typically starts with the government harassing private oil companies. Clearly that makes owning stocks in those companies risky as owners will lose their investment. This can also fuel volatility in the futures markets as investors try to predict the likelihood of nationalization. If those companies get taken over or forced out, the total supply of oil may fall and so the future price will be higher.

This has been going on for a few years now. And the trend continues to worsen. Russia’s Vladimir Putin jailed the ex-chief of Yukos oil company so that it could be taken over by state-owned Rosneft in 2004. And today in Moscow, British Petrol is being hassled and taken to court.

In 2003 Hugo Chavez took the reigns of Petroleos de Venezuela in a “re-nationalization” move, and now Ecuador is taking Chevron to court. This little move by Ecuador could be the start of something bigger, as it looks like Ecuador might join forces with Chavez’s state-run venture, which might in turn join forces with Russia’s.

Bolivia also nationalized in 2006. Soon there will be nowhere left outside of Western Europe and the U.S. where private oil can safely drill.

Another reason that nationalization can drive prices up is that state-owned companies tend to under-produce private ones, creating additional risk that long-term output will be lower. Finally, consolidation of oil companies into just a few nationalized firms, especially when those countries form cartels rather than competing freely on the market, will also drive up prices. This trend in nationalization is simply an extension of the existing problems of OPEC. It should be obvious that this trend is contributing to the high oil prices.

But rather than see the reasons for the rise in prices — the real risks which face the oil market — Congress tries to strangle speculation, prevent new drilling, and it even flirts with idea of nationalizing our own supply. Reps. Maurice Hinchey (D-N.Y.) and Maxine Waters (D-Calif.) both recently suggested it, and a recent poll shows many Democrats(and even a few Republicans) think it’s a good idea. But nationalizing is the problem, not the answer.

cross-posted at Heritage.

Rent-Seeking and The Housing Crisis

2008-07-25T11:43:00.003-04:00

Recently, a scandal has broken out that provides great insight into the housing crisis. Countrywide Mortgage brokers have been treating Congress to VIP lending rates. Accepting donations of $100 or more is illegal for these politicians, but scandals like this are not uncommon. The deeper question is why a profit-seeking business like Countrywide would want to offer discount rates to government officials in the first place. It is, of course, because they expect something in return.

If government could not offer these businesses any preferential legislation, exemptions from taxes or relief from anti-business regulations, there would be no incentive to buy them off.

Economists call this kind of activity rent-seeking. When firms spend money – or decrease their profit – in order to ensure favorable treatment by government it is not efficient. They produce no more output, and instead the resources are wasted. The favorable treatment gives them a monopoly position or an advantage over their competitors and the consumer suffers.

It also encourages government officials to pass more kinds of regulations that strangle business so that there are more chances to offer relief in exchange for pay-offs from the businesses. So, it creates a feedback loop leading to more regulations, more bribes and then even more regulation.

The only way to end the cycle is to limit the scope of government with a clear line preventing government from offering any kind of preferential treatment to firms.

But rather than moving toward a smaller scope of government, we are currently headed in the opposite direction. The new housing bill is set to bail out firms on a preferential basis – often by helping those, like Countrywide, who made the most risky sub-prime loans. In the future, these businesses will remember the compassion of Congress and will take these risks again.

Local governments will benefit too – with $3.9 billion in community development block grants. These grants are provided so that local governments can purchase, renovate and resell foreclosed homes. The proceeds can then be used to do this again next time that government subsidies followed by government bailouts lead to a new round of foreclosures. In this way, government can cause a crisis, solve it, and cause a new one, little by little expanding its scope in the process.

Have we not learned the lessons of the National Recovery Administration, when subsidies and bailouts, public works programs, and stringent regulations led us to a consolidation of government and big business that strangled private initiative and threatened the liberties we hold dear? Apparently we have not – a recent Time Magazine poll showed that 82% favor public works projects and 70% say more government programs are needed for those struggling.

The more that we allow government to solve our economic woes, the more that it expands its scope and creates new woes, just to have something more to solve. This is the rent-seeking power of government at its most frightening.

Cross-posted at the Heritage blog.

Note that the Center for American Progress was very enthusiastic about the community development block grants - HT Econlog for that.

Understanding Monopoly Socialism

2008-06-05T21:01:00.004-04:00

Lenin (1917), in complete agreement with Marx, and with the true meaning of socialism, lays out the economic and organizational identity between state-capitalism and socialism. The only difference - which isn't one - is the "class" of the leaders of the system. But, of course, as leaders running the system, either one belongs to the "class" called bureaucrat. Hence, Lenin laid out the answer to Bukharin's Leviathan problem (see below).

Everybody talks about imperialism. But imperialism is merely monopoly capitalism.

...And what is the state? It is an organisation of the ruling class ...

For if a huge capitalist undertaking becomes a monopoly, it means that it serves the whole nation. If it has become a state monopoly, it means that the state (i.e., the armed organisation of the population, the workers and peasants above all, provided there is revolutionary democracy) directs the whole undertaking. In whose interest?

Either in the interest of the landowners and capitalists, in which case we have not a revolutionary-democratic, but a reactionary-bureaucratic state, an imperialist republic.

Or in the interest of revolutionary democracy—and then it is a step towards socialism.

For socialism is merely the next step forward from state-capitalist monopoly. Or, in other words, socialism is merely state-capitalist monopoly which is made to serve the interests of the whole people and has to that extent ceased to be capitalist monopoly.

Bukharin, of course, expressed disgust that state-capitalism was the most evil administrative totalitarianism to crawl the wretched Earth. In Imperialism and the World Economy (1915) he wrote:

Thus arises the final type of the contemporary imperialist robber state, an iron organization which envelops the living body of society in its tenacious, grasping paws. It is a New Leviathan, before which the fantasy of Thomas Hobbes seems child's play. And even more “non est potestas super terram quae compateur ei” (“there is no power on earth that can compare with it”).

Bukharin was, of course, right.

Bukharin did consider that a planned a totalitarian society could exist which was not socialism (as conceived by Marx), he pondered a possible "third system"; but he could not see that in fact it was socialism - that the only difference between central planning as socialism, and central planning as this "third system", was a change in human nature which would allow the people to enjoy this slavery.

He described this "third system" in the same 1915 book:

We would have an entirely new economic form. This would be capitalism no more, for the production of commodities would have disappeared; still less would it be socialism, for the power of one class over the other would have remained (and even grown stronger). Such an economic structure would, most of all, resemble a slaveowning economy where the slave market is absent. (italics in original)

However, the flaw in Bukharin's reasoning is that he is considering a non-economic effect (the domination of one class over another) as part of the definition of an economic system. Instead, an economic analysis must consider just the economic organization of the system - its institutions and their effects - and from there determine the expected outcome: whether it will resemble a slaveowning economy without a slave market.

From this standpoint, there is no basis on which to distinguish the "third system" from socialism. Indeed, it has no commodities - no trade, no market, no prices - so it isn't capitalism. Instead, it has central planning. This is the same as socialism. The only differences from socialism which Bukharin observes are that (1) one class may still dominate another and (2) that this class may not serve the needs of the people. But these two are potential results of the economic structure, not part of the structure itself.

The steps that socialists believed would prevent the outcome described above include a change in human nature on the part of the people, and the motives of the working class, who were to take the reigns of their new society. But their new society, they knew, would need to help change the nature of the people, and the structure must also allow the working class to achieve their good intentions. As any good economist knows, intention is not result.

If the economic structure is identical, why would this "third system" not also produce the desired change in human nature? The distinction is only in the "class" which has the reigns. But, this implies that the intention of the class will be accomplished through this structure. It must then be proven that this economic structure will indeed allow the working class to accomplish its goals and that these goals not only exist at the start but also remain, even as they take on the "class" of bureaucrat.

Socialists asserted that the economic structure - planning - would create a society of abundance. But this assertion was tied in to the "socialist" nature of their system - that the working class ruled it. Hence, Bukharin could not show that planning itself would produce enough plenty to allow the working class to accomplish their goals. In fact, Marxists relied primarily on their argument of inevitability to show this result. But the economic organization itself can only promise the need to direct the actions of the people, the result of abundance does not directly follow from the collective ownership of the means of production, and the "rationality" of the planned system.

If it could be shown that (a) the planned system will lead to higher output and that (b) the requirements for planning efficiently still allow for the egalitarian distribution required for the fulfillment of the socialist ideal, then it would only remain to show that the desire of the planners would remain benevolent, and the nature of the citizens would be such that the planned system would not feel oppressive (or that the system would allow for democracy, a much harder case). But Marxists proved none of these.

Bukharin also broached the subject as late as 1928 - just before Stalin helped to bring a fully socialist planned economy to the Soviet Union (and Bukharin at this point was losing his hold on the reigns of the system). He explained how it might look:

Here a planned economy exists, organized distribution not only in relation to the links and interrelationship between the various branches of production, but also in relation to consumption. The slave in this society receives his share of provisions, of goods constituting the product of the general labor. He may receive very little, but all the same there will be no crises.

The crises referred to are, of course, the crises Bukharin believed to be inevitable under capitalism. Again, he sees that economically the organization is identical. He is one step away from seeing that this is in fact the system he has been advocating and putting into place in Russia. What is he missing?

He is missing the fact that this economic system does not allow for any other outcome. The "very little" product that the "slave" receives is, of course, all there will be. The bureaucrats in power not only will not, but cannot, give the people any more. Despite the best of intentions which they may or may not have, they can do no more than act as slave masters. They are forced to direct the actions of individuals. They cannot change human nature. They cannot wave a magic wand and effect the higher output, the perfect order, or the master plan which they may desire.

The planned economy - the institutional organization of the economy - determines the outcome. The best intentions of the best people in the highest leadership positions cannot turn a slave economy into a socialist paradise, just because they wish it so.

The Electoral Map

2008-05-27T19:19:00.006-04:00

This is pretty amazing - as of right now (and the last vote was cast almost 24 hours ago, so not sure if its still running) the outcome at this Ask 500 People's question of mine tracks perfectly with the voters' spectrum of about 40% Republican, 40% Democrat and the remainder as Independent/Swing/Don't Care/other :

The question is:

Government has a duty to help the poor and to regulate business.

A) No, government should stay out of the people's business.
B) Yes, this is the function of government.
C) Only if we vote for those things.

The results:

	No	Yes	Only if...
United States	40%	40%	20%

Planning Every Home

2008-05-22T10:38:00.006-04:00

Here is a perfect example of the planning mentality driven by the need for order.

Arstechnica rails "We're in dire need of a national broadband strategy" because we have less broadband than other countries. Seeing something perceived to be a problem, the immediate conclusion is that government must fix it. Clearly, if the US is falling behind other countries in some area which the author deems important, then the US government must intervene on its behalf and both determine what is "wrong" and also "fix it."

Arstechnica links to further explanation of the right "strategy" and how our current one is wrong. They complain that the government "strategy" relies too much on the free market. The government says that intervention will distort the market and Arstechnica replies :

Is it too much to ask for some sort of vision? Some sort of leadership? Something along the lines of "a chicken in every pot and fiber to every home by 2012"?

Yes, its too much to ask. The assumption is that government must determine what the "right amount" of broadband is. Further, the assumption is that government should set the goal, determine whether it is being met and why, and finally take action to reach that goal. But, my dears, that is planning. It is a planning mindset, and leads to planning of the economy.

Just as you don't want government to ensure that chickens are raised and killed and delivered to your door, based on some fallacious notion that it is government's job to put "a chicken in every pot," neither should we expect government to ensure that we have broadband in every town or fiber in every home.

It is actually conceivable that we have the right amount of broadband right now. This may not be a "market failure." In fact, we could probably never determine whether there is some kind of failure here - be it caused within the market or by government. We can't know the "right amount" of broadband. But, also, here is the kicker:

I have lived in rural New Mexico. I know the facts. You can get satellite internet in the furthest reaches of the most absurd nooks and crannies of the four corners states and across the most ridiculous expanses of desert - for cheap. For much less than the median rural New Mexico household spends on other luxury items. If they want it, they can get it. This is true across the country - either satellite or cable or DSL is offered everywhere (the map shown by Arstechnica confirms this; nearly every spot on it has some kind of broadband, just apparently not as much as they have in Australia).

If demand is low, then fewer services are offered. In other words, if they don't want it, they don't get it. So it isn't there. If they do want it, guess what, someone offers it. If they want it, they can get it.

If they want it, they can get it.

One more time: we don't need government to spoon feed us.

A Race to the Bottom

2008-05-21T16:17:00.004-04:00

Could it be that governments around the world are competing so hard for investment that they are actually going to bottom out on business taxation one day soon? This is the best sign I have seen in some time - since the big trend toward flat taxes by former communist countries - that indeed a small-government world is possible.

Note that I am not saying that tax trends overall have been good, but consider the evidence regarding business tax competition.

(1) Corporate income taxes are lower in all except four OECD countries than they were in 1986 -- unfortunately, overall taxes as a percent of GDP have gone up in every one. Seven OECD countries cut corporate rates between 2006 and 2007.

(2) The reduction in rates since 1986 and the low rates in OECD countries today are the result of conscious competition among countries for investment income. Because of this competition Germany, which has lagged other European Union countries in lowering corporate tax rates, wanted to force tax harmonization among member countries to prevent investment from fleeing. When this strategy failed, Germany was forced to start lowering its own corporate rate.

(3) The intent to compete ferociously, and without respite, is spelled out. In a testimony to the Canadian Senate Committee on Banking, Trade and Commerce, it was recommended that “the Canadian capital gains tax rate should be quickly be lowered to match the rate in the United States.”

The report then added that “the Committee also recommends that international competitiveness be the criterion guiding the choice of a capital gains tax regime, and that federal government be prepared to lower the tax until that criterion is met.” Canadians listened, and the current capital taxation in Canada is falling fast. By 2012 the federal corporate income tax rate will be 15% and the overall effective corporate rate will be the lowest in the G7 and, as the budget report gloats, it will be over 9 percentage points lower than in the US.

How low can they go? Maybe a little vicious competition can help bring a more reasonable tax system and lead to smaller government. Sadly, it may only be on the business side that government will care to compete. Yet "brain drain" does occur when individual income taxes are too high. As any anarcho-capitalist will tell you, competition is the best way to keep government in line. Let's hope we're beginning to see a trend toward tax competition.

The New Farm Bill: Agricultural Planning

2008-05-15T12:26:00.006-04:00

In explaining consumer sovereignty, Mises said:

Neither the entrepreneurs nor the farmers nor the capitalists determine what has to be produced. The consumers do that.

And this is accurate - in a free market. However, the Farm Bill has effectively put an end to that truth, in the United States. Passing with a veto-proof majority, the new farm bill expands subsidies further, and gives yet more power of direction to farmers and corporations; and their legislative managers.

Originally enacted (under other names, such as the AAA) the farm bill was a central planning program to control agricultural prices and support employment and wages. Over the past 75 years it has changed its mission, but it is still used for planning purposes.

Today, senators reel off speeches about the importance of directing funds toward "sustainable" energy, ensuring low food prices, and feeding the poor. Meanwhile, they don't mind that their interest groups and constituents reward them with votes for the generous subsidies. While congress no longer attempts to restrict production by commanding the farmers to kill their pigs, they still set quotas and control prices.

Is it possible to get congress to abandon this massive central planning program? There is such a loud and broad constituency for it (farmers including big business, low income and welfare advocates, environmentalists, and those who just like government regulation) that it seems unlikely. However, congress does respond to the voter. Let him not be irrational.

Update - Washington Watch says:

H.R. 2419
The Farm Bill Extension Act of 2007
Costs $5,727.56 per family

Universal versus Quantitative

2008-05-07T10:48:00.007-04:00

Economic Laws are universal. As Mises explained, contra Caplan, because supply and demand laws - marginal utility, preferring more at a lower price - are universal, it isn't a quantitative matter but a qualitative matter that maximizing output is better achieved with a free market solution. For the given ends (maximizing output), the best means are to allow the free market to work rather than intervene.

However, while this means that markets are better than socialism, does this mean all interventions are bad? Clearly the qualitative result - the end is better achieved with markets than socialism - is true. But how much better? That is the quantitative question. The answer is clear at the system level: a lot better. But, at the intervention level, one must weigh the objectives.

If the objective of a given intervention is only to maximize output, one need not ask the quantitative question: the market will better serve. But, if one has multiple ends: (1) raise the wages of the poorest worker (2) without reducing total output by very much, then the quantitative question surfaces. For, even if the only end is to increase the wages of the poorest worker, there is a time component, and total output will ultimately lead to lower wages in the long run for the poorest worker (if higher output over time leads to higher real wages of the poorest worker, over time).

This is where the Krugmans and Card & Kreugers (and Galbraiths, who dispute the condition) like to fight. Maybe the quantitative aspect isn't large enough to offset the first round effect of the command benefit. When they argue this line, some turn to "natural rights" arguments: it isn't right to command benefits. But an economist must look at the quantitative aspect of the universal truth, and weigh the losses against the benefits. How does total output respond? How does the universal rule of competitive wage setting and profit maximization induce the employer to respond to command wage hikes? How will the benefit accrue - will it at all? To whom will it go?

And hence economics becomes difficult, and dynamic, quantitative and empirical analysis is required. Hat tips to Mises, Caplan and the struggling economists on both sides.

Competition and Anarchy

2008-05-06T19:09:00.004-04:00

Over at Distributed Republic, Micha Ghertner argues the competitive government position for libertarianism/anarchy:

I personally would much rather take the risk of letting isolated communities victimize their own members than the opposite risk of adopting a social rule whereby those with sufficient political power are free to "reproduce their ideologies and prejudices" upon all members of society, and not just a few sub-communities within it.

Many people tend to take a moral stance on anarchism: a democratic state should set the social rules, otherwise the strongest will brutalize - mobsters will take over and nobody will be safe. But, what if government currently is the mob boss? On the one hand, democracy is supposed to prevent that, but we all know that tyranny of the majority can oppress the minority (Hitler was democratically elected) so this argument is weak at best.

On the other hand, you have the idolization of the state as moral authority, which makes it dangerous. While the miniature states (or private security firms) can also take on this superior moral role, at least there would be more competition and free entry and exit from the states, so that minorities can easily escape persecution. Potentially they would also be less idolized if they were voluntary and competing.

Could this be a consequentialist morality argument for anarchy - that our values are more likely to be protected in a system with competition over moral authority?

Update: coincidentally, Arnold Kling just posted something on the same subject.

Property Rights and Coercion: Institutional Philosophy

2008-04-24T19:08:00.005-04:00

A Marxian philosopher who is dating my sister was nice enough to have her forward a Marx reader and a link to an interesting critique of "libertarian parables" (from Arnold Kling at Econlog) which "conflate" coercion by government with coercion by other individuals.

Based on a utilitarian framework, the blogger argues that these kinds of coercion are not the same:

A well-ordered society is governed by the rule of law. This means that there are institutional processes to govern certain classes of action. The outcome of a just institutional process -- whether it be a guilty verdict, or minimum wage legislation -- has a different normative status than the corresponding action of a neighbour who takes it upon himself to unilaterally impose his will on others.

This is a good argument. However, it doesn't resolve the problem, it just kicks it down the road. What is this "normative status?"

True, institutional coercion is different from unilateral coercion; but it may be better or it may be worse: this depends both on what the government coercion achieves and also on how you define "better" and "worse". The institutional takings by the Soviet government were not - I'd argue - better than unilateral theft: they were worse. I haven't proven this in any framework; I could show it with efficiency as the endpoint; I could also try to show it with morality as the endpoint or with the magnitude or quantity of coercion as the endpoint.

What is the difference between coercion by individuals and coercion by government? Is it the organized nature of the latter? Or the equality before the law? Is it a matter of "fairness"? Or is it an efficiency thing? If the framework is utilitarianism, it would be efficiency - however, then only efficient coercion should count for that, and for example, a minimum wage certainly isn't that.

But libertarians who cry "coercion" are usually not taking a utilitarian framework; they are usually arguing "natural rights." So, we need to determine the "ends" and then judge the "means" on that basis.

Organized coercion by government could be said to violate more rights, not fewer. If government consistently violates rights, then one could argue this is "better" in some sense; if fairness not coercion per se, is the measure. Then, of course, "fairness" must be defined.

On the other hand, if government only punishes theft by an individual, then coercion is minimized; while if government punishes individual coercion but then violates rights on its own, then quantity of coercion is increased. So, if quantity of coercion is the measure, government violation is also worse.

The blogger also argues that the freedom from coercion is not enough, because common property implies a freedom to use of said property, and property rights invade this freedom. Hence protection of property and freedom from the takings neglects the freedom of others - and hence in its own way is coercive:

Freedom to use common land and resources is restricted by private property rights, which replaces it with a (particular individual's) freedom to dispose of property, and exclude others from use of it.

This reminds me of that quote I blogged about last week:

If someone is starving in the minimal state, yet in a ‘no-ownership’ world they would have been in a more advantageous position, then they do, in fact, have rights to compensation against all property holders (although not against the state) under the principle of justice in rectification. The Lockean proviso, or rather its historical shadow, would have been violated.

It appears to me as a natural rights argument, not a utilitarian one.

In reality, whomever has made a claim to the property is the rightful owner, whose rights must be protected. If someone buys it (under private property institutions) then he owns it-- there is no "right" to "common property" if someone has purchased it. The only way to claim that "freedom to use" common property has been violated is to invoke natural rights. Otherwise it is just the institutional framework, which either protects private property or it doesn't.

The blogger also slips in a positive freedom based on outcome, which far exceeds the institutional framework setup:

(2) It neglects other kinds of constraints that can impede us, leading to an impoverished conception of "freedom" that fails to track what really matters to us (namely, capability). Negative liberty is fine as far as it goes, but it makes for a rather one-eyed approach to evaluating policy. A better maxim would be to seek to enable people to achieve their goals. Economists (like everyone else) should be concerned with opportunities, not merely interference.

Now he wants to give people a right to certain outcomes. This goes beyond any protection of rights or freedoms (natural or otherwise) and seeks to determine outcomes. However, the assumption, of course, is that government could even get the outcomes desired-- something which is clearly a huge jump. It also has nothing to do with freedom. It may have to do with "welfare" but is has nothing to do with "freedom." And welfare - well that comes with its own bag of worms.

Majority Rule in Media

2008-04-22T22:47:00.002-04:00

More Trotsky as promised. This idea just strikes me as horrific. Can you imagine it?

Soviet America will have to find a new solution for the question of how the power of the press is to function in a socialist regime. It might be done on the basis of proportional representation for the votes in each soviet election.
Thus the right of each group of citizens to use the power of the press would depend on their numerical strength – the same principle being applied to the use of meeting halls, allotment of time on the air and so forth.

Thus the management and policy of publications would be decided not by individual checkbooks but by group ideas. This may take little account of numerically small but important groups, but it simply means that each new idea will be compelled, as throughout history, to prove its right to existence.

Today we have every niche market imaginable - from organic "fair trade" clothes pins to Kosher liver patties, to communist radio and anarchist newsletters; what would we have under a rule whereby only the popular media (and products) were delivered? This is one critical failure of socialist thinking. The market provides for the little guy; pure democracy (if it were possible under central planning) would not.

In Soviet America

2008-04-22T21:57:00.006-04:00

The American soviet government will take firm possession of the commanding heights of your business system: the banks, the key industries and the transportation and communication systems. It will then give the farmers, the small tradespeople and businessmen a good long time to think things over and see how well the nationalized section of industry is working.

The commanding heights - the corporatist controls of the reigns - leading the United States, step my step toward socialism. Circa 1934, under the New Deal.

The most daring proposals of the Hoover commission on standardization and rationalization will seem childish compared to the new possibilities let loose by American communism.

Writing in 1934, Trotsky spoke of the "Hoover commission on standardization and rationalization" but this is not the official Hoover Commission, which was not enacted until 1947. He was writing during Roosevelt. I'm not sure what he was referring to but Hoover did talk about standardization and rationalization of the economy by business; he was influenced by Tugwell (who, by the way, is very interesting - I am reading him right now - and I will post on him soon).

Trotsky imagined much more than we had in terms of planning, but he saw the potential within the New Deal. Indeed, as a step along the way:

In the United States, through the science of publicity and advertising, you have means for winning the support of your middle class that were beyond the reach of the soviets of backward Russia with its vast majority of pauperized and illiterate peasants. ... Even the intensity and devotion of religious sentiment in America will not prove an obstacle to the revolution. If one assumes the perspective of soviets in America, none of the psychological brakes will prove firm enough to retard the pressure of the social crisis. This has been demonstrated more than once in history. Besides, it should not be forgotten that the Gospels themselves contain some pretty explosive aphorisms.

As I have argued! Or anyway, that religion is not so far from communist Utopian dreaming... one could say the same about a Utopian dream of anarchy too, of course. Of course, Trotsky argued that the NRA was not in place in order to deliver communism (I would not argue that it had those conscious intentions either, for the most part) but that it would contain the seeds of its own crawl toward communism-- as it corrected itself with further intervention.

The NRA aims not to destroy but to strengthen the foundations of American capitalism by overcoming your business difficulties. Not the Blue Eagle but the difficulties that the Blue Eagle is powerless to overcome will bring about communism in America.

He then speaks about the public mind:

The “radical” professors of your Brain Trust are not revolutionists: they are only frightened conservatives. Your president abhors “systems” and “generalities.” But a soviet government is the greatest of all possible systems, a gigantic generality in action.

The average man doesn’t like systems or generalities either. It is the task of your communist statesmen to make the system deliver the concrete goods that the average man desires: his food, cigars, amusements, his freedom to choose his own neckties, his own house and his own automobile. It will be easy to give him these comforts in Soviet America.

I'm not sure that we abhor generalities; but certainly people respond to these materialist incentives. Choosing one's own necktie is not the first thing I think of when I think of "Soviet America" though; nor one's own house and automobile.

And then he describes the role of the monetary system, which once communism emerges, will not be initially used to control the economy - at that point, it should be stable:

Your almighty dollar will play a principal part in making your new soviet system work. It is a great mistake to try to mix a “planned economy” with a “managed currency.” Your money must act as regulator with which to measure the success or failure of your planning.

Your “radical” professors are dead wrong in their devotion to “managed money.” It is an academic idea that could easily wreck your entire system of distribution and production. That is the great lesson to be derived from the Soviet Union, where bitter necessity has been converted into official virtue in the monetary realm.

There the lack of a stable gold ruble is one of the main causes of our many economic troubles and catastrophes. It is impossible to regulate wages, prices and quality of goods without a firm monetary system. An unstable ruble in a Soviet system is like having variable molds in a conveyor-belt factory. It won’t work.

Only when socialism succeeds in substituting administrative control for money will it be possible to abandon a stable gold currency. Then money will become ordinary paper slips, like trolley or theater tickets. As socialism advances, these slips will also disappear, and control over individual consumption – whether by money or administration – will no longer be necessary when there is more than enough of everything for everybody!

Through stable money will socialism slip into pure communism. Some intriguing ideas in Trotsky. I forgot how much I enjoy him. More Trotsky to come!

The Social Will

2008-04-21T17:42:00.003-04:00

From the comparative physical impotency of man in his natural state, and from his inability to invent, make and use, unaided by his fellows, all the tools he needs to multiply his power of motion in the degree required for his safety and welfare, comes the social state, in which the tool is necessarily a social organ; social in its origin, social in its growth, social in its purpose, social in its incorporation of natural forces which of right belong to all; set in motion by human muscles, for the good of the social body, under the direction of the social will.

The common good, the will of the people, the drive of mankind. The people have spoken, it is an increase in social welfare, the "individuals as a whole" prefer it.

When we come together, are we stronger or weaker? Or rather, does collective purpose exist- and if so, when? Certainly "united we stand" in the short term can work; but just as clearly, imagining that we as a people have some aggregated preference is dangerous at best.

Rights and Action

2008-04-16T19:07:00.003-04:00

Some political economists and other social philosophers, advocating statism of some sort or against it, argue mainly using economic arguments, while others argue from the perspective of "natural rights."

Both sides can get heated about which is the right argument or which is more fundamental. Both kinds of arguments have advocates who believe that it is clear that their preferred system is well defended by their preferred method of defense.

And then there are some interesting blends. What if you could throw Locke, Madison, Mill, Mises, some natural rights libertarians, some anarchists and some Marxists into a pot, shake it up, pour it into a beaker and distill, and get some crystallized insight?

As a starting point, consider the following:

If someone is starving in the minimal state, yet in a ‘no-ownership’ world they would have been in a more advantageous position, then they do, in fact, have rights to compensation against all property holders (although not against the state) under the principle of justice in rectification. The Lockean proviso, or rather its historical shadow, would have been violated.

A natural right to communism as against anarchy; what of the social welfare: could you calculate, using justice in rectification, to determine which society statically has more rights-utils from a social welfare perspective? A meaningless task, but for a rainy Sunday, it could be amusing.

And then this golden one:

The only manner in which man can act upon nature is by motion. In this respect John Stuart Mill observed: “Man moves a seed into the ground; he moves an axe through a tree; he moves a spark to fuel; he moves water into a boiler over a fire; the properties of matter do the rest.” In other words, “This one operation of putting things into fit places for being acted upon each other by their own internal forces is all that man does, or can do, with matter.”

This is a statement of fundamental import, and John Stuart Mill so highly valued it that he claimed the credit of having first made it. Yet, with the usual shortsightedness of political economists, bounded in their views by their narrow, middle-class environment, he utterly fails to draw from it the only possible conclusion, viz., the social character of machinery and the stupendous wrong done to man, a social being, by the private ownership of the mechanical organs of motion.

If you didn't catch it: that was a Marxist using Mises' law of action, via Mill to prove the truth of the Law of Value (Marx). Or wait, was he using the "natural rights" explanation for the inherent right of man to own the value of his labor... indeed, that is an example of Leeson's argument that all natural rights people are essentially able to come to whatever conclusion they want, because they can avoid all science and just assert that something is a right. Hence does he own the product of his labor, or does it own him?

Here are some thoughts on Madison.

Sorry. I am just having fun; some readings to get my mind off of serious stuff. Hope you enjoy them too.

Government Mediation and Wage Setting - in 2008

2008-04-09T18:16:00.003-04:00

A lesser known provision of the Employee Free Choice Act, described beautifully here, would allow government to mediate contract disputes between labor and management if they don't come to agreement fast enough - 90 days. And if another 30 days of mediation doesn't produce, government can go ahead and fix wages as it sees fit.

If you think unions wouldn't welcome this, you haven't thought hard enough about their corporatist tendencies. And when companies complain? Subsidies to shut them up. Of course they would come with price controls, but that's OK. Then we just have full blown corporatism.

Here is the relevant section of the bill, with my emphasis:

(2) If after the expiration of the 90-day period beginning on the date on which bargaining is commenced, or such additional period as the parties may agree upon, the parties have failed to reach an agreement, either party may notify the Federal Mediation and Conciliation Service of the existence of a dispute and request mediation. Whenever such a request is received, it shall be the duty of the Service promptly to put itself in communication with the parties and to use its best efforts, by mediation and conciliation, to bring them to agreement.

(3) If after the expiration of the 30-day period beginning on the date on which the request for mediation is made under paragraph (2), or such additional period as the parties may agree upon, the Service is not able to bring the parties to agreement by conciliation, the Service shall refer the dispute to an arbitration board established in accordance with such regulations as may be prescribed by the Service. The arbitration panel shall render a decision settling the dispute and such decision shall be binding upon the parties for a period of 2 years, unless amended during such period by written consent of the parties.

Lets sum up: if after 90 days the union doesn't want to give in to the company, the union may call in the government in the form of a Federal Mediation and Conciliation Service. They may then filibuster for another 30 days until that Service sets the wages, benefits, hours and so forth for them. The government shall render a decision binding upon the parties. It is binding initially for two years, at which point the process can begin again.

This effectively removes any market mechanism from any industry in which unions are able to entrench themselves. If unions gain power in a given industry (and they will find it easier without the secret ballot) they will be able to leverage government for their purpose. At that point, it will be simple to obtain compensation far exceeding the workers' worth; this will threaten to bankrupt firms so they will complain to government; government, wanting to please everybody, will offer subsidies and price controls; and we will have corporatism.

Note that once a union has taken hold at a firm, even if the union doesn't want mediation, the firm may, and so the firm can be the one to filibuster. Some firms, especially inefficient ones which are having a hard time competing, will decide that it would be better to have government step in - especially if they have a friend in congress. They may then set unrealistic demands and hold out for arbitration. This could provide an easy way to introduce new subsidies and regulations for corporations currently missing out.

Why the gloomy outlook? Perhaps government will simply arbitrate effectively between two parties, such that wages will reflect worth and no subsidies or controls will be necessary!

This might be possible if there were no rent-seeking by unions or firms or if politicians didn't or couldn't reward it. However, such behavior will be rewarded if reality is any guide.

So efficient firms with low cost and potentially low paid (perhaps unskilled) workers, if unionized, will be at the mercy of the union which can choose to filibuster until government steps in on its behalf; and inefficient firms can make wild demands of labor until government steps in, at which point it can wield its big corporate power and lobbying influence to extract subsidies from the taxpayer. If you don't think this would be a big step toward corporatism, you haven't been reading this blog enough!

Corporatism & Money

2008-04-07T01:46:00.004-04:00

What is the role of monetary policy and the gold standard, with regard to government levers on the economy, and corporatism? There is certainly a grand role for it. I will post more on this later, but a few words (p.105) from Garet Garrett on inflationary money policy (speaking of a law of 1933):

The law reads: "That every provision contained in or made with respect to any obligation which purports to give the obligee a right to require payment in gold, or a particular kind of coin or currency, or in an amount of money of the United States measured thereby, is declared to be against public policy; and no such provision shall be contained in or made with respect to any obligation hereinafter incurred."

It follows, literally, that it is now unlawful in this country for a borrower, be it the Government, a corporation or a private person, to promise that the value of what is to be paid back shall equal the value of what was borrowed. The ostensible reason for this amazing prohibition is that the Government shall be free by fiat to fix the dollar at any value it may deem expedient; that it shall have the power to say of a 50-cent dollar, a 25-cent dollar or a 5-cent dollar , as it has already said of a 60-cent dollar, "This is the standard dollar and full legal tender in settlement of all obligations." It follows again, literally, that no one knows today what the value of the dollar will be tomorrow, or a month hence, or a year from now. The Government itself does not know. And that is now the state of the currency.

What a perspective. Do we know? We think we know because we think we know inflation, and we think we accurately predict it. But, as anyone who has looked into the CPI much knows, we don't really. Not even close.

Mises on Unions

2008-04-02T18:05:00.003-04:00

From NRA Economic Planning (1937), Roos quotes the November 1934 issue of American Federationist which reads:

If you are a union member, your union can watch every increase in production and every technical improvement which reduces cost. Your officers will know when to drive for restoration of the 1929 wage level, and you need not stop with the 1929 level. Since you are now producing 7 per cent more than you produced in 1929, your wages should eventually be above 1929 by a proportionate amount.

But the assumption that labor should reap the full reward of higher productivity – producing 7 per cent more – and should demand it through collective bargaining is a mistake. As Mises eloquently explained, in Human Action (1949):

Present-day labor-union doctrine operates with a concept of productivity of labor that is designedly constructed to provide an alleged ethical justification for syndicalistic ventures. It defines productivity either as the total market value in terms of money that is added to the products by the … divided by the number of workers employed … they call the …[the] "increase in productivity of labor," and they pretend that it by rights belongs entirely to the workers…

One thousand men working with the traditional old-fashioned tools in small artisan shops somewhere in the backward countries of Asia produce over the same period of time, even when working much longer than forty hours weekly, many fewer than m pairs. Between the United States and Asia the difference in productivity computed according to the methods of the union doctrine is enormous … The superiority of the American plant is entirely caused by the superiority of its equipment and the prudence of its entrepreneurial conduct …

On the eve of the "Industrial Revolution," conditions in the West did not differ much from what they are today in the East. The radical change of conditions that bestowed on the masses of the West the present average standard of living (a high standard indeed when compared with precapitalistic or with Soviet conditions) was the effect of capital accumulation by saving and the wise investment of it by farsighted entrepreneurship. No technological improvement would have been possible if the additional capital goods required for the practical utilization of new inventions had not previously been made available by saving.

While the workers in their capacity as workers did not, and do not, contribute to the improvement of the apparatus of production, they are (in a market economy which is not sabotaged by government or union violence), both in their capacity as workers and in their capacity as consumers, the foremost beneficiaries of the ensuing betterment of conditions.

Mises wasn't being anti-labor, he was just laying out the facts. Roos explained the effect that this had on the economy and on standard of living for the average American:

Because of resulting higher costs of construction, the workers in other industries muse pay scandalously high prices for even the most modest homes. Similarly, in the almost completely unionized anthracite coal industry, the wage scales of 1934 were so high that price was prohibitive; the industry was prostrate and thousands of miners were on public relief.

Though, of course he would not need it, Mises had plenty of evidence to work with, and though we may forget our history, he was speaking of America at that time. We should not forget, especially as we inch back toward some of the more corporatist roots, as we expand union power once again.

The Morality of Government

2008-04-01T23:12:00.004-04:00

This is another recycled post (see I'm good! No waste!) and though its a little different than the usual type of post I will be making, I think its important; if you want to judge government planning, you need to understand how we perceive government:

Somehow, maybe because we've lived so long in dictatorial governments of one kind or another- monarchies, empires, tribal rule, religious societies, etc-- we look to authority for morality. So, we end up trusting government's motives even when we should know better, and we see corruption as bad but legalized wrongs as okay, simply because they are legal.

Sometimes corruption is not what is actually immoral-- like under the Soviet Union, corruption could mean pay offs that allow people some freedom to move, to trade, to free their relatives from gulags. It might be unfair for some to be freed and not others but the corruption is at least saving some people. But it is very difficult for people to separate what is legal from what is right.

We often think, maybe unconsciously, that if something is legal, it is okay, it must be okay. It must be fair and right and moral. Or even if it is theoretically wrong, it isn't your fault - you are absolved of any sin. If the system is set up that way then you have no moral duty to go against it. Perhaps, in fact, your duty is to go along with it, to obey the law. And if something is against the law then it is wrong in some degree even just because it is breaking the law.

Because of this, we end up sustaining evil regimes and rules and institutions that we might otherwise break out of. It also explains why we inevitably expect government to fix any perceived problems seen in the market, rather than asking whether government could actually do something better than the private sector, we see a problem and say "this is a problem so government must fix it." So, the irrational faith in government is a serious problem, it distorts our world view and we don't even realize it. We have far too much faith in the moral authority of government, and hence its omniscience and omnipotence.

Here is an example. Someone, ostensibly a libertarian - the group least likely to trust government, seemingly least likely believe in the moral authority of government - was commenting on a blog post and made the following remark. With regard to why it is okay to accept government welfare he said this; I am paraphrasing: "You've already paid in to the program. The program already exists. It may be immoral but while it exists you may as well enjoy it. Heck, if there was a law that required all women who I wanted to have sex with to sleep with me, I'd be a busy man."

Now, it was an offhand remark which he probably hadn't thought through. And, he said that the program itself (welfare) might be immoral, so he was admitting that government can do wrong. However, he was essentially arguing that so long as the program or the law exists, it is morally okay to make use of it. Without necessarily realizing that he was saying so, this guy had just said "If government made rape legal, I would rape every woman I was attracted to."

The crazy thing is that he didn't realize it. The much more frightening thing is that nobody else seemed to either. The comment went by unnoticed. When I saw it, I pointed out the implications of what he'd said, and most people ignored my outrage. Then someone actually called me a PC nut-job and extremist and defended him. One person claimed that "if its legal, it can't be called rape!" Only one person agreed with me, but it wasn't a rigorous agreement, it was "I actually agree with that" as if it was a matter of opinion.

It isn't a matter of opinion. Just because government makes something legal doesn't change what it is- be it theft (legal under communism) or murder of a certain group (legal under Hitler) or slavery (legal once in America) or rape. It is the worse form of moral relativism to imagine otherwise, yet we are much more capable of it than we realize.

If one is oppressed and forced to engage in these immoral activities as happened under communism and under Hitler, they might be more easily forgiven, but we must still recognize that it is immoral and we must not think that we can happily engage in these activities without guilt simply because they were made legal - and that is what this guy was saying.

Until we can take responsibility for our own actions under any system, we will have a hard time fixing the system.
-------------------------------------------------------------------------------

I will add: maybe he thought it wouldn't be his crime (the rape) because the law made her have sex with him. So, government was raping her- he wasn't. Still, it is a strange sort of morality that makes it okay for him to oblige the government's sin and take part. And, slavery is no different - if the government makes it illegal for the slave to escape, does that negate the role of the slaveholder? Does that absolve him of any wrongdoing?

Sentimental Economics

2008-03-31T09:44:00.004-04:00

I am finally reading Caplan's Myth of The Rational Voter. I feel like I've read 90% of it online already, but as usual Caplan has me agreeing and disagreeing within a given moment. Somehow balancing brilliant and vacuous on the head of a pin.

In any case, it got me thinking. Why is it - and a million people have asked this question, its nothing new - that humanity is so drawn to ideologies like socialism?

While a materialist like Sasha might argue that politicians and voters choose policies they believe to be in their own material self-interest, the desire for socialism seems not to be materialistic. True, for the political entrepreneur it is a good materialistic choice, but not for the masses. And, yet many don't seem to care. Utopian socialists did not expect it to bring wealth, and many cling to the ideology even after seeing the poverty it can bring. The staying power of the desire for socialism is amazing- people do not want to give up the sentimental ideology underlying this economic system.

Caplan argues that belief is a normal good - people are willing to spend money on it; they will give up material wealth for the chance to hold their beliefs. Even if the belief is wrong, and this costs the adherent, he will spend money to maintain the belief in the face of contrary evidence. Okay, but why do people want to believe in socialism? Why, for example, would they be willing to spend a huge amount of money on it - potentially giving up half or even 90% of their future personal wealth?

One thing is that it is probably quite recent that we have realized just what must be given up. Caplan points out that, while the average voter underestimates the ability of markets to perform well, even the average economist underestimates this ability as compared with government - they overestimate government. And, if we step back to earlier centuries, if we underestimated the market we might not realize how amazingly prosperous we could be in the long run, using markets. So, even if we properly estimated government (which surely we did not), we might still underestimate markets to a great enough extent that we would not see the full opportunity cost of giving them up.

Still, what draws people to socialism and keeps them entranced? Many have called it a religion, and this is true. But it isn't simply a religion because people want to believe in it, and don't care about facts. It is more than that- socialism itself plays the role of a religion particularly well.

And this is really the crux of it. The same drive that calls people to seek out God draws people to socialism. The self separates a person from others, the separation from God, as many see it, or from the womb. People long to reunite, and look for it in true love, religion, spirituality, drugs, sex, music, and so on.

The reason for this is an interesting question in itself- I tend to think that it must be biological (except when I am feeling spiritual, in which case I have an irrational explanation), and is part of the same emotional drive that compels us to want to procreate. This is very important especially today when kids are expensive and useless (you can't even send them out into the field to till wheat until they are, what, 18?) But it is also at the core of who we are. What would life be without this drive? It is a drive for life, for love and for greater purpose.

There is a longing to be one with the universe, to come home to a Greater Self or soul, so as to end the eternal loneliness of the isolated self. And, better than any other political ideology, socialism offers this.

It isn't just a uniting movement, like some nationalist ideology, and it isn't just a cold planned order. Socialism offers the coming together of all people, united in a collective desire, acting as one. All people on Earth coming together for a common purpose, to better the common good. No more isolation, no more struggle on your own, no more separation from God. Together, we can achieve anything, and you won't be alone. All good is in socialism, because it is made by all people for the good of all people.

How could you not be entranced?

Corporatism in America Part V

2008-03-30T16:38:00.004-04:00

(this post is new)

To follow up on the earlier posts which were based on the Cato article and Fools Gold (see below), I will now add some thoughts from NRA Economic Planning. I hope to follow up with lots more from that excellent book later.

"...industrial planning implies the standardization of production,employment and prices; the standardization of materials, products and methods, and the substitution of concerted action and forethought for unco-ordinated and predatory competition either in a single industry or over the entire area of industry. It means the shaping of individual and corporate industrial activities into a co-ordinated whole...Industrial planning is the conscious guidance of our industrial life by collective methods"

Who said this?

George B. Galloway, chief of the planning division of the NRA. He went on to admit the areas of freedom which might be lost under his collective planning:

"To be sure, the execution of group plans involves some limitations upon the economic decisions of individuals or corporations whose activities must be adjusted to the policies adopted for the industry as a whole. The decisions subject to limitation include those pertaining to production, prices, hours, wages, savings, investment, trade practices and the use of property."

Oh, is that all? Just production, prices, hours, wages, savings, investment, trade practices and the use of property? That's not too bad then.

One interesting are of research is the effect of rent-seeking by labor unions and corporations, using the powerful levers of the NRA's more discretionary rulings, or the laws for which they can offer exemptions to industry. It is well known that in countries with more bureaucracy and less free markets, corruption and political wrangling replace market entrepreneurship. In the case of the NRA laws, overtime pay was suggested as a replacement for maximum hours; but interest groups and corporations could battle for exemptions to maximum hours instead. Labor unions did so because they wanted monopolistic control over wage setting; firms, meanwhile, wanted exemptions rather than having to incur overtime pay costs.

Hence, while a rule of overtime pay applied equally to all industry would have been simpler and would have given firms more flexibility, it was never enacted and instead dozens of codes for dozens of industries (many completely unenforceable) were supplemented with dozens of exceptions each.

And, the evidence suggests that this somehow did not help relieve unemployment. Go figure.

Corporatism in America Part IV

2008-03-30T16:36:00.002-04:00

Some thoughts
-------------------

Most of what I've posted up to here was from that Cato article. The bit about North Dakota and maybe a snippet here or there was from the book I mentioned, Fool's Gold. These thoughts and quotes are mostly from the latter.

1. FDR ran on a platform promising to cut government spending by 25%

...Franklin D. Roosevelt was elected as a Democrat on a platform that declared for sound money, a balanced budget, a reduction in the expenses of federal government, and the abolition of the many useless boards and bureaus...
...The direct pledge was made by the Democratic candidate that the cost of conducting federal government would be reduced by twenty-five per cent. That had a nationwide appeal. The direct pledge was also made that a system of sound money would be maintained, by which the people believed he meant the retention of the gold standard. That also had nationwide appeal.

a) Wow - who even suggests that these days? Doesn't that show where the America public was at that time.
b) How could he get away with doing not just the opposite, but actually growing government more than 3-fold -- from 3% of GNP to 10% of GNP. Obviously the crisis of the onset of the depression was the excuse, but what an incredible 180, what a wildly dishonest turnaround. And yet he is so fondly remembered(!?)

2. In a letter from the Comintern to the communist and socialist parties (who were all pro-Soviet and from whose ranks many in government later came) in the US in 1921, urging communists to take part in all elections including the general election from within one or the other of the two major parties (and also to continue their good work in infiltrating trade unions and other organizations, and schools and so forth) it was said:

The Communist party must remember that it is not its purpose to reform the capitalist state. The purpose of the Communist is, on the contrary, to cure the working masses of their illusions, through bitter experiences. Demands upon the state for immediate concessions ... to the workers are formulated, not to be 'reasonable' from the point of view of capitalism, but to be reasonable from the point of view of the struggling workers, regardless of the state's power to grant them without weakening itself. Thus, for instance, a demand for payment out of the Government treasury, of full union standard wages for millions of unemployed workers is highly reasonable from the point of view of the unemployed workers but damaging from the point of view of the capitalist state.

And some strange decisions were made.

...farmers could not find sufficient help to enable them properly to harvest their crops. Thousands of idle men loafed around the towns and villages but disdained to work because the dole they received from the government was as much, or nearly as much, as the farmers could afford to pay them in wages.

Originally it had been argued to give relief money to the Red Cross-- but that would not allow the money to funnel properly through government and into the right pockets:

Officious bureaucrats and designing individuals...have used the money to build gigantic political machines...
...The thing, however, that has caused an uproar--and rightfully--is the established fact that relief agencies in many cities appear to be dominated largely by communists, and that the communists are using the public money they thus secure to carry on their battle to destroy our form of government and our system of economics. General Hugh S. Johnson, sent to New York by the Roosevelt administration to "put men to work," found it necessary to establish a special department to ferret out the large number of communists who "chiseled in" on public funds. He expressed himself rather forcefully on the subject when he left his job. His successor, Victor Ridder, however, according to the press, immediately disbanded the special committee.

3. Some other things you might not know about the policies enacted at that time:

Fined and imprisoned for competitive pricing: A little tailer in New Jersey was fined and sent to jail because NIRA asked him to charge forty cents for pressing a pair of pants and he charged thirty-five. Sent to jail for violation of government set prices -- in the United States. Wait, can that still happen if it is housing or some other area where government controls prices?

NIRA labor laws were really enforced: Some employees of Harriman Hosiery Mills Company went on strike, others did not. The company was told by NIRA to discharge loyal employees and take back the strikers, it refused. General Johnson, head of administration of NIRA in charge withdrew their Blue Eagle and set up a government boycott to prevent products of the mill from being sold. The company was forced to close, with great financial loss.

Farmers told how much and which crop to plant: The Potato Control bill reads like Soviet agriculture, with farmers being told not to plant certain crops and how many acres of another crop he must plant.

Corporatism in America Part III

2008-03-30T16:34:00.001-04:00

The Decline and Fall of American Corporatism
-----------------------------------------------------------

WWII may have been the height of Corporatism, but the end of the war did not signal a drop back to pre-NRA levels. In fact, it took many years to unravel the regulations and restrictions put in place during the corporate years.

Libertarians often argue that in fact we may be becoming less free and more state run today. I don't think this is the case. Over the 50 years following the union-peak (34% unionized, still a far cry from Sweden's 80-90%) there was a matching fall in regulation. Corporatist restraints slowly uncoiled.

Regulatory timeline:

1940s: After NIRA is overturned, antitrust law and policy becomes "pro-competitive" and for low-price rather than fair-price.

1945: End of major price controls, output controls, nationalization and other firm controls. Some nationalization left in place, along with regulation and some price controls.

1947: Taft-Hartley reinstated the right to not join a union, the right to fire unionized workers and some other basic rights in the labor market.

Korean War: A return to price controlling and regulation during wartime.

1961: JFK still used his powers to force the hand of the steel industry, on the wage front explicitly and on the price front through threats. No corporation felt safe firing unionized workers for fear of this kind of government intervention.

1970s controls: Nixon and Carter impose price controls, Nixon as part of ending gold-backing of Bretton Woods and then "due to the oil crisis"; Carter as part of trying to keep gas cheap for consumers. These were the last national-level price controls to be explicitly enacted. There are some calls for healthcare-related price controlling but there is no longer unanimous support for such things.

1970s deregulation: Ford proposes deregulating the airline industry, becomes law under Carter (ADA); Deregulation in utilities (PURA and NGPA); ICC ended with MCA; Deregulation (and breakup) of AT&T.

1981: Reagan signals to firms that they can fire unionized workers by himself firing the striking government airline workers.

1992: Caterpillar hires replacements for (fires) UAW members after a 5 month strike.

Theory and public opinion (summarized from the Cato article):
1. Competitive pricing is understood, above-competition prices cause unemployment. This comes with changes to anti-trust, the neoclassical wave in economics etc.
2. Union political power is recognized as having its own problems. Hayek and Friedman and others weigh in.
3. Public choice economics takes this to the next stage, on the economic side: unions do not create offsetting productivity to pay for higher wages but just collect rents; on the political side: rent-seeking means consolidation of power and garnering of public funds for private use. The main beneficiaries of regulation turn out to be the regulated companies (which explains why they were always the ones fighting for it!).
4. The old assumptions about competition leading to conglomeration fail to emerge.
5. Unions are only useful with the rest of corporatism in place-- when prices are controlled to allow for union wages, for example. Unions remain interesting only to public employees.

What about intra-corporate questions:
Unocal v. Mesa Petroleum (see also "Revlon v. McAndrews & Forbes Holdings, Inc.") -- can a director of a corporation reject a takeover because the takeover would be bad for workers, even if it is good for shareholders (or what about, just because he feels like it)? Isn't that intra-firm and should be left to the private actors to battle it out? Cato represents this case as anti-corporatist because the director must do what is in the interests of shareholders, of the firm, rather than the firm being subjected to labor control. I'm not buying it.